FAQs: Does the credit legislation apply?
This information sheet (INFO 101) answers frequently asked questions about the application of the National Consumer Credit Protection Act 2009 (National Credit Act). It covers:
- credit providers and intermediaries
- Australian financial services (AFS) licensing
- commercial and consumer activities
- pre-existing credit contracts
- investment lending for residential property
- margin lending
- pawn brokers
- debt collectors
For more detailed guidance on these issues, see Where can I get more information? at the end of this page.
How do I know if I need to comply with the credit regime?
Anyone who engages in credit activities in relation to consumer credit needs to comply with the National Credit Act and National Consumer Credit Regulations 2010 (National Credit Regulations).
A ‘credit activity’ is defined in section 6 of the National Credit Act. It includes:
- providing credit by way of a credit contract or consumer lease
- benefiting from mortgages or guarantees relating to a credit contract or consumer lease
- providing credit services in relation to credit contracts and consumer leases.
In what situations is a referral activity caught or exempted? We have arrangements with accountants and other advisers who only refer their clients to us.
There are two issues involved in working out whether someone who refers a consumer to a credit provider or credit service provider needs to be licensed (or a credit representative of a credit licensee).
The first issue is whether the referral activity is caught as a regulated credit activity requiring an Australian credit licence (credit licence). This depends on whether the referral activity relates to a particular loan contract from a particular provider: see Regulatory Guide 203 Do I need a credit licence? (RG 203).
If the referral activity is caught as a regulated credit activity, the second issue is whether the referral activity is exempt under the referral exemption. This is a narrow exemption from licensing requirements for doing referrals. You may be able to rely on the exemption if you only inform the consumer that a particular credit licensee or their credit representative is able to provide particular credit activities (e.g. lending, suggesting or assisting), how to contact them, and you disclose any benefit or commission you may receive.
There are a variety of different relationships and referral models across industry. See RG 203 for examples and information on a range of possible situations.
To what extent can a financial planner mention credit in a full financial plan without having a credit licence?
If a financial planner is giving generic advice relating to credit, no credit licence is required. However, if the financial planner suggests or assists a consumer in relation to a specific contract from a specific credit provider (including suggesting that the consumer remain in a particular contract), then a credit licence is required: see RG 203.
We do mostly commercial loans, but sometimes there is a small consumer component (e.g. a loan to a director). Does the credit legislation apply to us?
The test for consumer credit remains the same – that is, if the advance is predominantly for personal, domestic or household purposes, the loan is caught. ‘Predominantly’ means more than a 50% consumer component. If it is not predominantly for personal, domestic, or household purposes, the loan is not regulated under the National Credit Act.
We are a credit provider who has not offered, nor been assigned, any new contracts since 30 June 2010, but continues to collect under pre-existing contracts. Do we need to be licensed?
See Information Sheet 110 Requirements for lenders with carried over instruments (INFO 110).
Are loans to property developers regulated under the National Credit Act because they are investment lending for residential property?
Most property development is done through companies. Loans to companies are not subject to the credit legislation. Only loans to natural persons and strata corporations are caught.
If the loan is to a natural person, and the credit is provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes, then the loan is regulated under the National Credit Act, and the credit provider needs to be licensed. ‘Residential property’ is defined in the National Credit Act and includes land on which a dwelling is or will be affixed predominantly for residential purposes.
Therefore, a loan to a natural person to buy land and build residential dwellings on it will generally be regulated. This is true even if that person borrows on a number of occasions to develop a number of properties.
Is margin lending captured?
Margin lending is covered by different legislation. It is regulated under Chapter 7 of the Corporations Act 2001 (which is separate from the National Credit Act). More information on margin lending, such as the responsible lending requirements, is available on the margin lending page of ASIC’s website.
Are pawn brokers captured by the credit legislation?
Generally, no. Pawn broking is exempt under the National Credit Act. The exemption sets out that the credit legislation does not apply to pawn broking if the only recourse in event of a default is against the pawned goods. However, Court may reopen unjust transactions in the context of pawn broking: see sections 76 to 81 of the National Credit Code.
Pawn broking is covered by state-based legislation, and also by the consumer protection provisions of the Australian Securities and Investments Commission Act 2001 (ASIC Act).
Are debt collectors regulated? Do I need to get a credit licence, or can I just be an agent authorised by each credit provider?
Debt collectors are subject to the National Credit Act if they own the debts they collect. There is a current exemption for debt collectors who merely act as an agent of the person who owns the debt and who are regulated under the relevant state laws. They do not need to be licensed or authorised. However, all debt collection activity in relation to credit remains subject to the ASIC Act (including the prohibition against undue harassment or coercion).
Where can I get more information?
- Go to www.legislation.gov.au to read the National Credit Act and National Credit Regulations
- Read RG 203
- Go to www.www.pthybec.com/credit for the latest information on credit
- Contact us online or call 1300 300 630.
Please note that this information sheet is a summary giving you basic information about a particular topic. It does not cover the whole of the relevant law regarding that topic, and it is not a substitute for professional advice. Omission of any matter on this information sheet will not relieve a company or its officers from any penalty incurred by failing to comply with the statutory obligations of the National Credit Act.
You should also note that because this information sheet avoids legal language wherever possible, it might include some generalisations about the application of the law. Some provisions of the law referred to have exceptions or important qualifications. In most cases your particular circumstances must be taken into account when determining how the law applies to you.
This is Information Sheet 101 (INFO 101), reissued in October 2020.